UK: Summer Budget 2015 Commentary

Last Updated: 14 July 2015
Article by Smith & Williamson

1 Overview

With a careful blend of positive messages for individuals and corporates, laced with plenty of less welcome rules and HMRC powers, the Chancellor of the Exchequer delivered a balanced Budget to a lively House of Commons.

He has sent a clear message on the importance of good compliance and clear transparency, announcing further resources to help enhance exchequer receipts by attacking tax evasion, avoidance and other such practices.

The heat has been turned up on longer-term UK-resident non-doms, some of whom are likely to be burned by a tightening of the regime. But for business the Chancellor has announced a pledge to further decrease the main rate of corporation tax, increase the proposed level of annual investment allowance and increase the enterprise allowance against employers' national insurance.

The welcome increase in rent-a-room allowance was, however, overshadowed by the clouds gathering over buy-to-let landlords who will face an increasingly less generous regime over the coming years.

2 Personal and Trust taxes

2.1 Personal tax allowances and thresholds

The  Chancellor has set out the  personal allowance  and higher rate threshold for 2016/17 and 2017/18.

As part of the pre-election commitment to a £12,500 personal allowance by the end of this Parliament, the Government will increase the income tax personal allowance:

  • from £10,600 in 2015/16
  • to £11,000 in 2016/17
  • and £11,200 in 2017/18.

Once the £12,500 level is reached, the personal allowance will subsequently increase in line with the national minimum wage (NMW) to ensure that those working 30 hours a week on the NMW are not subject to income tax.

On a similar theme, and as part of its commitment to a £50,000 higher rate threshold, also by the end of this Parliament, the existing threshold at which the 40% income tax rate starts will increase:

  • from £42,385 in 2015/16
  • to £43,000 in 2016/17
  • and to £43,600 in 2017/18.

The NIC upper earnings limit will also increase to remain aligned with the higher rate threshold.

Comment

Although the increases are welcome news, not all taxpayers benefit.  Those with incomes over £100,000 continue to see their personal allowance abated on a £1 for £2 basis. Those on low incomes already taken out of tax will not be affected.

2.2 Changes to taxation of non-UK domiciled individuals

The  Government has announced wide-reaching changes to the rules governing the tax treatment of non-UK domiciled individuals.

Under long-standing rules, non-UK domiciled, but UK-resident, individuals may elect to be taxed in the UK only on UK-source income and gains, and non-UK source income and gains to the extent these are remitted to the UK.

Non-UK domiciled individuals are also currently not subject to UK inheritance tax (IHT) on tax assets outside the UK until they have been resident in the UK for 17 of the past 20 years.

The Government has announced that, from 6 April 2017, those individuals who have been resident in the UK for more than 15 of the past 20 tax years will be deemed to be UK-domiciled for all UK tax purposes.

Once deemed UK-domiciled, an individual will be taxed on his worldwide income and gains, while UK resident, with his worldwide estate subject to UK IHT.

The new rules will be effective from 6 April 2017 irrespective of when the individual arrived in the UK. There will be no special grandfathering rules for those already in the UK.

For those individuals resident in the UK for 15 or fewer years, the remittance basis charges will remain unchanged.

The proposals include a number of associated changes and the Government plans to launch a consultation on the 'best way to deliver these reforms', followed by a second consultation on the draft legislation to be included in Finance Bill 2016.

At the same time, it was announced that, following consultation, the proposed three- year minimum claim period for the remittance basis will not be brought in.

Comment

Following the announcement of the planned abolition of non-UK domiciled status in the 2015 Labour Party manifesto and the publicity this attracted, some form of reform to the regime for non-UK domiciled individuals was inevitable, whichever party formed the next government.

That these changes may not have been envisaged by the current Government until recently, is evidenced by the fact that the £90,000 remittance basis charge for those resident in the UK for 17 of the past 20 years, introduced in March 2015 Budget, will now only have effect for the tax years 2015/16 and 2016/17, before it becomes obsolete. While the headline announcement of the reforms appears straightforward, they will involve a large number of associated and complicated technical changes, the entire details of which are yet to emerge.

However, some important points should be noted

The reforms do not abolish non-UK domiciled status, but merely bring in a new deemed UK-domiciled status, which can be lost once an individual has been non-UK resident for at least five years.

As a result, the children of a long-term UK resident non-UK domiciled father will still inherit this non-UK domiciled status, subject to the new deeming rules.

Of considerable interest will be the impact of the changes on the treatment of non-UK resident trusts established by non-UK domiciliaries.  As part of the technical documents accompanying the announcement, the Government has confirmed that assets placed into trust while an individual is non-UK domiciled for tax purposes will remain excluded from UK IHT.  While income received from such a trust after the individual has become deemed UK domiciled would be subject to UK tax on an arising basis, income and gains kept within the trust will remain outside the scope of UK income and capital gains tax.

Consequently, those individuals who are not UK domiciled and who are not already caught by the existing IHT deemed domicile rules may wish to review their position urgently with a view, potentially, to establishing new offshore arrangements before the reforms come into force.

2.3 Eligibility of non-domicile status for UK-born individuals

Rules are  to be introduced to restrict the eligibility to non-domicile  status for individuals born in the UK, with a UK domicile  of origin, who later return to the  UK with an acquired non-UK domicile  of choice.

Individuals born in the UK but who subsequently leave the UK and obtain a non-UK domicile of choice will be treated as if UK domiciled for tax purposes immediately following any resumption of UK residence status.

The new rules will be effective from 6 April 2017.

It is likely that these proposed changes will form part of the wider consultation on the tax treatment of non-UK domiciled individuals.

Comment

The introduction of these changes can be seen to follow recent high-profile cases and reforms in this vein were widely expected.

The changes do, however, leave little scope for pre-emptive action.  In particular, an important point to note is that any trusts established by such an individual while they are abroad will not benefit from the excluded property trust regime after they have regained UK-domiciled status.

As such, it is unclear at present what action these individuals will be able to take to mitigate the impact of these changes.

2.4 UK residential properties - inheritance tax for non-UK doms

The  Government has announced that from 6 April 2017 all UK residential property held directly or indirectly by non-UK domiciled individuals will be brought within the charge  to UK IHT.

Currently, where a non-UK domiciled individual holds UK property personally, this is subject to UK IHT, as the property is situated in the UK. If, however, the property is held by a non-UK company, the shares in this company will not be situated in the UK for IHT purposes, so the underlying property is effectively removed from UK IHT where the ultimate owner is not deemed UK domiciled for IHT purposes; that is, they have been resident in the UK for fewer than 17 of the past 20 tax years.

A common addition to this structure is to place a non-UK trust above the non-UK company while the ultimate owner is not deemed UK domiciled. This will create an 'excluded property' trust, which will remain outside the scope of UK IHT regardless of whether or not the non-UK domiciled individual becomes deemed UK domiciled for IHT purposes.

The proposed reforms will bring all UK residential properties held in such a way within the scope of UK IHT from 6 April 2017.

The reforms will apply to all UK residential properties, regardless of whether they are let commercially, but will not impact upon diversely-held non-UK companies, so will not catch structures such as non-UK investment trusts.

A consultation on the reforms will be published in order to assess how best to bring them into effect and a further consultation will be published on the draft legislation, which is intended to form part of Finance Bill 2017.

Comment

These reforms can be seen as the final step in bringing UK residential property held by non- UK residents fully within the scope of UK tax, following the introduction of the annual tax on enveloped dwellings (ATED) and the charge to CGT for UK residential property held by non-UK residents.

It is interesting to note, however, that the proposed reforms cover all residential property (apart from those owned by diversely-held non-UK companies), regardless of how it is occupied, unlike the ATED rules, which specifically exempt commercially let properties. Individuals who have not already unwound their non-UK property-owning structures (known as 'de-enveloping') will now need to consider whether the removal of the IHT benefits make these structures uneconomic. The process of de-enveloping is not without complication and cost and it will be necessary to consider each case on its merits.

2.5 Inheritance tax and the main residence nil-rate band

From 6 April 2017, for taxpayers who wish to pass their main residence to their direct descendants on death, a new main residence nil-rate  band will be introduced, in addition to the  usual nil-rate  band.

The new main residence nil-rate band will start of at £100,000 in 2017/18 and increase by £25,000 annual through to 2020/21. The annual amounts will be:

  • £100,000 in 2017/18
  • £125,000 in 2018/19,
  • £150,000 in 2019/20, and
  • £175,000 in 2020/21.

Thereafter, it will increase in line with the consumer price index (CPI). The existing nil rate band itself will be frozen at £325,000 until the end of 2020-21.

The relief can be used against only one main residence that the deceased lived in at some point. Where the relief is not used in full, it may be transferred in the same way as the usual nil rate band to a surviving spouse.

The main residence nil-rate band will be available in full against estates worth in total under £2 million, or subject to withdrawal at a rate of £1 for every £2 of estate over the £2 million threshold.

The Government will also be consulting from September 2015 on the practical application of the availability of the relief against cash or other assets that are passed to direct descendants on death, which equate to the value of a taxpayer's home cashed in where a taxpayer choses to downsize or ceases to own a home on or after 8 July 2015.

Comment

This relief from IHT for the family home formed part of the Conservative party manifesto in the run up to the 2015 election.  This announcement is therefore not unexpected although is more complicated than a simple increase in the nil-rate band.

Given the sharp increase in house prices and the freezing of the IHT nil-rate band in recent years and in the future, an additional relief will be welcomed by families who wish to pass their home to their children or grandchildren.

The announcement that the relief will not be restricted for those families wishing to downsize is also welcomed, and hopefully prevents a perverse incentive not to downsize as their needs reduce. We look forward to examining the detail of how the relief will be applied for downsizers.

2.6Other announcements

2.6.1  Extending averaging periods for farmers

The announcement made in the March Budget that the period over which farmers will be able to average their profits for income tax purposes is to increase from 2 years to 5 years from April 2016 has been confirmed.

2.6.2  Payments from sporting testimonials

Following a call for evidence in 2014, the Government has announced it will consult on changes to the existing tax treatment of payments from sporting testimonials.

2.6.3  2015 Anniversary Games - Income tax exemption for non-resident Participants

The previous commitment to exempt from income tax non-residents participating in the 2015 Anniversary Games, taking place between 24 and 26 July 2015, is to be implemented.

To view the full article please click here.

We have taken care to ensure the accuracy of this publication, which is based on material in the public domain at the time of issue. However, the publication is written in general terms for information purposes only and in no way constitutes specific advice. You are strongly recommended to seek specific advice before taking any action in relation to the matters referred to in this publication. No responsibility can be taken for any errors contained in the publication or for any loss arising from action taken or refrained from on the basis of this publication or its contents. © Smith & Williamson Holdings Limited 2015

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.